Sebi to aggregate clearing operations of BSE, NSE in 2-3 years

Mumbai: The capital markets regulator is looking at allowing interoperability between the two main stock exchanges to facilitate aggregated clearing in the next two-three years, said a top official at the Securities and Exchange Board of India (Sebi), a move that will bring down the cost of trade.

India’s two main stock exchanges are the Bombay Stock Exchange and National Stock Exchange.

Sebi currently allows traders to settle and clear only on the exchange on which the transaction takes place.

“As of now, aggregated clearing is not possible because the clearing corporations of both exchanges are separate and they are not integrated,” executive director J. N. Gupta told Reuters Insider.

“However, Sebi is looking into the possibility of interoperability between the clearing corporations. But it will not be very soon. It will take two to three years.”

The move would be especially beneficial to high frequency trading (HFT), which, although in its early stages, is expected to grow in India.

Banks and hedge funds undertake the quicker algorithmic trade to make markets, earning thin profits from inefficiencies among various marketplaces.

HFTs have been criticized for making markets more volatile, a fact borne out by the US regulators partly blaming HFTs for the ‘flash crash’ in May 2010 when shares there plunged 600 points in just a few minutes before bouncing back.

Gupta said such an occurrence “can never happen” in India due to the existence of “the circuit breaker system” which halts trading in times of excessive volatility.

“If HFT improves in India, then institutional segment players will be improving and maybe BSE will see their HFT coming somewhere near to NSE but that will be requiring BSE liquidity and BSE volumes also to grow which is a business between the BSE and the NSE”.